The COVID-19 pandemic continues to force thousands of U.S. retailers to close their doors. A recent report from Coresight Research shows that U.S. retailers could close between 20,000 and 25,000 stores this year — about 60% of them in malls. That’s significantly higher than Coresight’s original closure estimate of 9,000 stores, which came out in March as the pandemic took hold across the country.
While closing the doors helps reduce costs such as utilities and the payroll for workers, it also puts the property’s insurance coverage at risk. The status of the property as either vacant or unoccupied can be the determining factor in the payment of claims.
The occupant’s intention to return is at the heart of whether a building is considered vacant or unoccupied.
“Vacant” properties face a higher risk of loss compared with facilities that are simply “unoccupied.” Most insurance policies for commercial properties include coverage restrictions for vacant buildings, which are also known as vacancy clauses. They restrict coverage for incidents such as theft when a building has been vacated for a set period of time, generally 30 or 60 consecutive days. For losses that are covered in vacant buildings, insurers typically pay the actual cash value instead of replacement costs.
By contrast, buildings deemed “unoccupied” are still maintained. Power and utilities are generally left on. Equipment, merchandise and furnishings may remain inside. Unoccupied but preserved facilities have a greater chance of having their claims covered by their insurance policies.
Here are some scenarios that could lead to a property being labeled “vacant,” which can compromise property coverage:
Here are some best practices for ensuring property coverage when facing a business closure:
While the COVID-19 pandemic has left the fate of many facilities across the U.S. in limbo, understanding the difference between a “vacant” and an “unoccupied” property can be a game changer for maintaining coverage during the crisis.
James “Chip” Stuart is the chief sales officer for HUB International of California.